Stocks Gain as Traders Weigh Another Big Rate Cut: Markets Wrap

Admin September 22, 2024

(Bloomberg) — US equities eked out a gain as traders parsed commentary from Federal Reserve policymakers and saw scope for further easing after last week’s half a percentage point interest-rate cut.

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The S&P 500 advanced 0.3%, a whisker away from last week’s all-time high as Fed officials reflected on the central bank’s policy path. In a sign that the market’s gains may be broadening out, an equal-weighted version of the benchmark — that gives Bath & Body Works Inc. the same sway as Nvidia Corp. — rose 0.5% to close at a record. The Dow Jones Industrial Average also closed at a record while the Nasdaq 100 rose 0.3%.

Among individual movers, shares of Intel Corp. climbed 3.3% after Apollo Global Management Inc. was said to have offered to make a multibillion-dollar investment in the chipmaker. Boeing Co. advanced some 2% after offering sweetened deal terms to striking workers.

Data showing US business activity is robust even as growth moderates stoked confidence the world’s largest economy can nail a soft landing. US business activity expanded at a slightly slower pace in early September, according to data released Monday, while expectations deteriorated and a gauge of prices received climbed to a six-month high.

“This is a somewhat inconclusive report, and therefore it shouldn’t alter Fed expectations dramatically,” according to Vital Knowledge’s Adam Crisafulli. “The flash PMIs do suggest the US economy is on reasonably sound footing, especially compared to Europe.”

Traders have been wagering on nearly three-quarters of a point of policy easing by year end, suggesting at least one more jumbo rate cut is in store. Wall Street and policymakers alike are awaiting jobs data for more clues on the direction of the economy.

Chicago Fed President Austan Goolsbee said with inflation approaching the central bank’s target the focus should turn to the labor market and “that likely means many more rate cuts over the next year.”

Neel Kashkari at the Minneapolis Fed also pointed to weakness in the job market, he backs lowering interest rates by another half percentage point by year end. His counterpart at the Atlanta Fed, Raphael Bostic took a moderate stance. Starting the central bank’s cutting cycle with a large step would help bring interest rates closer to neutral levels, but officials should not commit to a cadence of outsize moves, according to Bostic.

Later this week, investors will get data on the Fed’s preferred price metric and data on US personal spending, due on Friday.

Yields on the policy-sensitive US two-year fell to 3.58% while longer dated Treasuries were little changed. US government bonds had been under pressure with the Treasury slated to auction $183 billion in front-end supply and up to $25 billion of new issuance in corporates expected this week.

“With the Fed’s first rate cut since 2020 in the history books, many investors may be thinking, ‘Now what?’,” said Chris Larkin at E*Trade from Morgan Stanley. “That will keep the spotlight on economic growth, especially the jobs market.”

Wall Street strategist Ed Yardeni had a warning for central bankers, saying last week’s aggressive rate cut could cause inflation to resurface if central bankers don’t tread carefully. The Fed is ignoring the upcoming presidential election where both candidates are proposing policies that could trigger inflation, he added.

In Europe, the euro slumped while European stocks notched small gains after weak PMI data for France and Germany was followed by numbers that showed the euro-area’s private-sector economy shrank for the first time since March.

The common currency weakened as much as 0.7% against the dollar amid wagers on more aggressive rate cuts from the European Central Bank.

“The market is almost demanding a more aggressive rate cut, especially after what we have seen the Fed has done,” Marija Veitmane, senior multi-asset strategist at State Street, said on Bloomberg Television. The ECB “is definitely behind the curve,” she said.

Corporate Highlights:

Apollo Global Management Inc. has offered to make a multibillion-dollar investment in Intel Corp., according to people familiar with the matter, in a move that would be a vote of confidence in the chipmaker’s turnaround strategy.

Boeing Co. offered its largest union a 30% wage hike in a bid to break a stalemate that has shut down its aircraft manufacturing across the Pacific Northwest.

Brookfield Asset Management has raised an initial $2.4 billion for a fund dedicated to investing in clean energy and transition assets in emerging markets, about halfway to its goal.

Palantir Technologies Inc.’s co-founder and chief executive officer Alex Karp, has a love-hate relationship with Wall Street. He’s said that analysts don’t understand the company and that he prefers Palantir’s loyal army of retail investors.

StandardAero Inc. is seeking to raise $1.1 billion in its initial public offering, after its backer Carlyle Group Inc. had decided to pursue a listing for the aircraft maintenance services provider rather than a sale.

Elsewhere, Asian markets were lifted by speculation China is close to announcing fresh stimulus, after a cut to a short-term policy rate and a rare economic briefing scheduled for Tuesday.

Gold reached another record high as the worsening strife in the Middle East fueled wagers on further price gains in the metal due to its haven status. US oil and gas stocks outperformed.

Key events this week:

Australia rate decision, Tuesday
Japan Jibun Bank Manufacturing PMI, Services PMI, Tuesday
Mexico CPI, Tuesday
Bank of Canada Governor Tiff Macklem speaks, Tuesday
Australia CPI, Wednesday
China medium-term lending facility rate, Wednesday
Sweden rate decision, Wednesday
Switzerland rate decision, Thursday
ECB President Christine Lagarde speaks, Thursday
US jobless claims, durable goods, revised GDP, Thursday
Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday
Mexico rate decision, Thursday
Japan Tokyo CPI, Friday
China industrial profits, Friday
Eurozone consumer confidence, Friday
US PCE, University of Michigan consumer sentiment, Friday